21st Century Business Herald reporter Zheng Qingting from Beijing reported thaton June 7, the World Bank issued the latest "Global Economic Outlook" (hereinafter referred to as the "Report") warning that in the context of the global economy being hit hard by the new crown pandemic, the Russian-Ukrainian conflict has caused another To make matters worse, the global economy may be entering a prolonged period of sluggish growth and high inflation.This raises the risk of stagflation, which could hurt middle- and low-income economies.
The World Bank forecast in the report that global economic growth will slow from 5.7% in 2021 to 2.9% in 2022, well below the 4.1% expected in January.Not only that, but per capita income in developing economies this year will be nearly 5% lower than pre-pandemic trends due to the pandemic and the Russian-Ukrainian conflict.
In addition, the World Bank predicts that in 2023, global economic growth will rebound slightly to 3.0%, but also 0.2 percentage points lower than the forecast in January this year.This is because the Russian-Ukrainian conflict is expected to continue to disrupt economic activity, investment and trade, while the release of previously pent-up demand will gradually be completed, coupled with the gradual withdrawal of fiscal and monetary easing policies in various countries.
World Bank President David Malpass pointed out that the Russian-Ukrainian conflict, repeated epidemics, supply chain disruptions and the risk of stagflation are taking a heavy toll on economic growth. "For many countries, an economic recession will be inevitable."
“Markets are forward-looking, so encouraging production and avoiding trade restrictions is a priority,” Malpass said. “To address capital misallocation and inequality, changes are needed across multiple policy areas, including fiscal, monetary, climate and debt. ."
The report said that due to the residual impact of the new crown pandemic and weak global demand, China's economic growth is expected to be 4.3% and 5.2% this year and next, 0.8 percentage points and 0.1 percentage points lower than the forecast in January; The annual growth rates were 2.5% and 2.4%, respectively, 1.2 percentage points and 0.2 percentage points lower than the January forecast.
Will the global economy return to the stagflation of the 1970s?
It is worth mentioning that this issue of the Global Economic Outlook is the first to systematically assess the current global economic conditions against the stagflation of the 1970s, especially the impact of stagflation on emerging market and developing economies.The report said that the sharp increase in interest rates in advanced economies to get out of the stagflation of the 1970s has become an important factor in triggering a series of financial crises in emerging market and developing economies.
"Developing economies must balance ensuring fiscal sustainability with mitigating the impact of today's multiple crises on the poorest," said Ayhan Kos, Director of the World Bank's Forecasting Group. "Monetary policy decisions are clearly communicated, adequately Using a credible monetary policy framework and protecting the independence of the central bank can effectively anchor inflation expectations and reduce the scale of policy tightening required to achieve specific effects of containing inflation and boosting economic activity."
The report notes that the current economic situation resembles the 1970s in three key respects: persistent supply-side disruptions pushing up inflation, preceded by a prolonged period of highly accommodative monetary policy in major advanced economies; slowing growth prospects ; The tightening of monetary policy needed to control inflation will adversely affect emerging market and developing economies.
There are, however, many differences from the 1970s: the dollar is strong, in stark contrast to the severe dollar weakness of the 1970s; commodity prices have risen less than they were in the 1970s; the balance sheets of major financial institutions are generally healthy .More importantly, unlike in the 1970s, price stabilization is now an explicit mandate of central banks in advanced and many developing economies, many of which have built a credible track record of achieving inflation goals over the past 30 years.
According to World Bank forecasts, global inflation will moderate next year, but inflation in many economies is likely to remain above the inflation target.The report pointed out that if inflation remains high and countries adopt policy measures similar to those used to address stagflation in the 1970s, it could lead to a sharp global economic downturn and financial crises in some emerging market and developing economies.
Russia-Ukraine conflict weighs heavily on global growth prospects
The report also provides new analysis on how the impact of the Russian-Ukrainian conflict on energy markets is weighing on global growth prospects.The Russian-Ukrainian conflict has led to a surge in the prices of various energy commodities.Higher energy prices will lower real incomes, raise production costs, tighten financial conditions, and constrain macroeconomic policy space—especially in energy-importing countries.
Growth in advanced economies is expected to slow sharply to 2.6% in 2022 from 5.1% in 2021, 1.2 percentage points lower than the January forecast, the report said.A further slowdown to 2.2% is expected in 2023, mainly due to the further withdrawal of fiscal and monetary support during the pandemic.
Growth in emerging market and developing economies is also expected to slow from 6.6% in 2021 to 3.4% in 2022, well below the 4.8% average annual growth rate from 2011-2019, the report said.This is because although higher energy prices have boosted growth in the short term for some commodity exporters, they have not been able to offset the broader impact of negative spillovers from the Russian-Ukrainian conflict.The World Bank has cut its 2022 growth forecasts for nearly 70 percent of emerging market and developing economies, which include most commodity importers and four-fifths of low-income countries.
The report emphasizes the need for decisive policy action at the global and national levels to avoid the worst consequences of the Russia-Ukraine conflict for the global economy.This requires a concerted global effort to reduce the human toll from the Russian-Ukrainian conflict, cushion the blow from soaring oil and food prices, speed up debt relief, and expand vaccinations in low-income countries.Measures are also needed at the national level to provide robust supply responses while keeping global commodity markets functioning well.
In addition, policymakers should avoid distorting policies such as price controls, subsidies, and export bans that could exacerbate commodity price increases.Against the grim backdrop of rising inflation, slowing growth, tighter financial conditions and limited fiscal policy space, the government needs to reset spending priorities and provide targeted relief to vulnerable groups.
